High Court confirms TUPE transfer does not trigger early pension entitlement

Background

In the case of McKavney v Serco Group plc, the High Court considered whether an employee was entitled to early payment of pension benefits following a TUPE transfer and later redundancy.

The claimant had built up pension benefits in one scheme before transferring to a new employer under TUPE. At that point, he stopped building up benefits in the original scheme but chose to leave his accrued benefits there, while joining his new employer’s scheme for future service.

Under the rules of the original scheme, early access to an unreduced pension could arise in limited circumstances. In particular, this included situations where an employee aged 50 plus was:

• Compulsorily retired by their employer; or
• Where their employment ended due to redundancy or a reorganisation of the employer’s business.

After his employment transferred, the claimant continued working for the new employer. He was later made redundant and received an immediate pension from the new scheme. However, the trustees of the original scheme refused to pay his earlier, deferred benefits at that stage.

He argued that he should be entitled to early payment because either:

• The TUPE transfer itself amounted to a form of compulsory retirement or reorganisation; or
• His later redundancy should trigger early access to benefits in the original scheme.

 

High Court decision

The High Court dismissed the appeal and upheld the decision of the Pensions Ombudsman.

The court held that the scheme rules required a genuine termination of employment in the relevant circumstances. A TUPE transfer did not meet this requirement, because employment continues by operation of law and is treated as uninterrupted.

The court also confirmed that the type of “reorganisation” envisaged by the scheme rules was one that leads to dismissal (for example, changes to roles or workforce structure), rather than a corporate transaction such as a business sale or outsourcing.

Importantly, the court interpreted the scheme rules in light of their broader purpose. In particular, the rules were designed to operate alongside a framework that allowed employees a period of time after transfer to move their accrued pension benefits into a new scheme. Interpreting the rules so that a TUPE transfer automatically triggered early payment would have cut across that protection.

As a result, the claimant was not entitled to early payment of his deferred benefits from the original scheme, either on transfer or on his later redundancy.

Learning points for employers

This decision confirms that entitlement to early pension benefits on redundancy or reorganisation depends on the specific wording of the scheme rules, which will usually require a genuine termination of employment. A TUPE transfer will not meet that requirement under the rules considered in this case. Similar issues can arise in other pension schemes, including the Teachers’ Pension Scheme and the Local Government Pension Scheme, where questions of access to benefits on redundancy or business efficiency may also arise, depending on the scheme rules.

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For more information or advice please contact Sofia Efstathiou or your usual contact within our Employment team.